Shifting of GST compliances on e-Commerce operators: Practical challenges

Shifting of GST compliances on e-Commerce operators Practical challenges-01

Since its introduction, GST Regime has seen quite some amendments in notifications, clarifications, circulars, and press releases. While the intention behind these is to ensure a smooth system of seamless credit and transparent transactions, it sometimes leads to complicated compliances in the short term due to the quantum and complexity of these updates.

One such change was seen vide Notification No. 17/2021– Central Tax (Rate) dated 18th November 2021 which increased and shifted major GST compliances on e-Commerce operators (ECO). Let us understand this notification in brief

Notification No. 17/2021 – Central Tax (Rate)

This notification dated 18th November 2021 amends Notification No. 17/2017 – Central Tax (Rate) dated 28th June 2017 and is effective from 1st January 2022.

On 17 September 2021, the 45th Goods and Services Tax (GST) Council decided to make ECO liable to pay tax under Section 9(5) of CGST Act for the following services provided through them:

  • Transport of passengers by any omnibus or other motor vehicles
  • Restaurant services (other than services supplied by eating joints, restaurants, etc. located at specified premises)

Intention & Applicability

The intention behind this notification was to shift the onus of GST collection and payment on ECO (for restaurants and passenger transport) to curb revenue evasion by the primary supplier. Consequently, an increase in GST revenue is anticipated from previously unchartered territories.

Thus, under the amended law, ECO that deliver food or offer passenger transport need to collect GST directly from the customers and deposit it with the Government. The previous practice upto 31st December 2021 was where the entire invoice amount was paid by such ECO to the food supplier (restaurant), who, in turn, was responsible for paying tax to the Government.

CBIC Circular

Subsequently, a circular was issued by the Central Board of Indirect Taxes and Customs (CBIC) to clarify various issues related to compliance and other aspects with respect to this amendment.

Analysis of the Impact

The burden to discharge GST is merely shifted to ECO and hence, it can validly be expected that no double taxation is triggered here. An addition to the previous taxation mechanics is that unregistered restaurant service providers and auto-rickshaws are brought into the ambit of GST through ECO by this Notification. Earlier the same were exempted from charging SGT to their consumers. This move helps the Government protect its revenue as restaurants that were earlier collecting taxes but not depositing it with the Government would not be able to do so anymore.

However, this shift of tax collection increases the compliance of ECO. This would not just require a significant upgrade in their accounting and GST-related software but would also add to a lot of complexities in the transaction recording and reporting. The CBIC needs to issue further clarifications with laying down the exact mechanics for executing such transactions such as the following:

  1. Since restaurants would not be collecting taxes and are not liable to issue tax invoice, what document should they issue instead?
  2. The restaurants cannot issue the bill of supply as these supplies are not exempt. Moreover, should they reflect tax amount on such document or not?
  3. Currently, ECO are issuing invoices on e-mail. However, no hard copy of invoice is being issued to customers.
  4. In the case of cash on delivery orders, if the restaurants do not reflect tax amount, how would the customer compute and pay such amount to the rider?
  5. The ECO would have to maintain an extensive and elaborate IT infrastructure so that necessary settlements with each restaurant can be done periodically. Along with the supplies made through them, they shall also need to invoice restaurants for their commission income and other charges that are actually their income.
  6. Increase in reconciliations between restaurants and ECO.
  7. The restaurants are also required to main separate set of records for dine-in and services provided through ECO, leading to increased compliance. This leads to an increase in overall costs of running a business.
  8. Discounts, exemptions, etc. add to the already complex chain of transactions and need to be accounted for correctly.
  9. Moreover, accounting and related disclosures like discounts given and borne by which party, COD returns and cancellations on already taxed transactions, etc. shall create a need for subsequent rectification and creates the possibility for human errors.
  10. While the GSTN has issued an advisory that prescribes that both restaurants and ECO would have to reflect this turnover in their GSTR 3B, revenue reconciliation at the time of filing GSTR 9/9C would be a herculean task.

Thus, as this amendment widens the tax base by bringing previously untaxed food vendors into the purview of GST when providing services through an online platform, it also leads to added compliance and costs for businesses. The Department needs to step forward and clarify the taxability of various transactions, procedural aspects and return-filing related complications brought about by the introduction of this change so as to enable the e-Commerce and services providers to incorporate such changes into their accounting system and software.

Read the last CBIC’s circular on recovery, suo-moto extension order, and other, here.

Sharing is caring!